One Trader's Advice If The "Ultimate Breakdown Is Likely To Be Sudden, Intense And Large"

Tyler Durden's picture

Submitted by Tim Price via,

On January 30, 2000, the 88+ million viewers of Superbowl XXXIV were treated to a commercial featuring a now infamous sock puppet.

The advertisement was from a company called, founded just two years before in 1998 at the height of the dot-com bubble. went public on the NASDAQ just weeks after the Superbowl with the symbol IPET.

And just 270 days later it was out of business, its stock price having fallen from $11 to just 19 cents in the interim.

The autopsy showed that was selling its products at nearly 30% below cost, giving rise to the old mystifying dot-com logic, “We lose money on every sale but make up for it in volume.”

Granted, did not have the benefit of a printing press, monopoly over the money supply, or worldwide intransigence in the existing financial system, so they couldn’t kick the can down the road too far.

But it remains yet another hallmark of one of the most important lessons in financial history: sooner or later, bubbles correct.

That goes especially for our current bond and debt bubble, for which Elliott Management’s Paul Singer succinctly projects:

“The ultimate breakdown (or series of breakdowns) from this environment is likely to be surprising, sudden, intense, and large.”

By comparison, investors in were being almost downright conservative when compared with today’s bond investors.

At least early stage technology venture have the potential to generate eye-popping returns.

Dell Computer, for example, delivered total returns to shareholders of 91,863% during the 1990s.

Yet anyone buying 5-year Japanese government bonds today and holding to maturity will be guaranteed a loss of -0.2%, not including the impact of inflation or the prospect of default considering Japan’s 230% debt-to-GDP ratio.

Owning Japanese government bonds makes about as much sense as in 2000.

And yet if market size is any indication, these Japanese government bonds remain among the more popular investments in the world.

What could possibly be driving major institutional investors to such madness?

Remember that the traders and bankers who work for the big institutions are all human beings… human beings who see their colleagues raking in huge bonuses for following the rest of the herd into these garbage investments.

This provides a huge disincentive to step boldly in the direction of sanity.

In many respects, job security and incomes of the individual cogs who make up the big machines of institutional finance depend on conformity.

They have every motive to maintain that the Emperor is fully clothed even though a child can see that he is totally naked.

Make no mistake, most major market participants have an enormous interest in maintaining the status quo. It’s impossible to overstate this.

No one wants to see the system fail, so the big money will keep buying and keep propping up the market up until the final moment.

As a result, it’s entirely possible (and likely) that markets continue an upward trend. Until they don’t.

This serves as a dangerous feedback loop to reinforce a false narrative that everything is awesome and under control… prompting cautious smaller investors to feel like they’re missing out.

Beware FOMO, the fear of missing out.

If the price of something seems unsustainably high, don’t try and benefit by speculating (short or long).

That’s too dangerous.

When it’s clear the game has become rigged, it’s easier and less risky to stop playing that game, and go play a different game somewhere else.

We continue to identify three specific games elsewhere–

One area is systematic trend-following funds, which offer the potential for meaningful portfolio insurance in a world where systemic risk is rising.

Systematic trend-followers perform very well when there’s extreme volatility and exogenous shocks. But it requires incredible, unemotional discipline.

As legendary trader Jesse Livermore put it,

“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, or for the get-rich-quick adventurer. They will die poor.”

Another area we’d point out is gold and silver.

If you believe that policymakers will continue to print more money, indebt their citizens, and make foolish decisions, then having a universally-recognized, real asset money-substitute is a sound choice.

Finally, consider “defensive value”.

Shares of fantastic businesses that are managed by talented people of integrity tend to make excellent investments, especially when you can purchase those shares at a discount to the company’s long-term intrinsic value.

If you can find extreme value, like buying a great business for less than the amount of cash it has in the bank (which does happen from time to time), even better.

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Croesus's picture

Best line, EVER! 

Another area we’d point out is gold and silver.

"If you believe that policymakers will continue to print more money, indebt their citizens, and make foolish decisions, then having a universally-recognized, real asset money-substitute is a sound choice."

It's a given that politicians will do all of this, and more. 

Okienomics's picture

What's the name of that great business again?  You know, the one that's well managed, profitable and has more money in the bank than its market cap?

adr's picture

I can't remember. There was that one company that had like $1 billion in cash but only had a market cap of somewhere around $250 million. It was seen as a bad investment because there was no way buying out the company would be worth anything because you couldn't sell the shares off for more than the company was worth.

Manthong's picture

Well there is no place go but up if you don’t buy

the falling knife argument.

So just go buy some JPM Sterling Corporate Bond Fund… it is only down 25%

The Alarmist's picture

Just buy 30-year treasuries and 50-year Index-Linked Gilts and enjoy the ride!

Four chan's picture

deploy the violently devaluing joo bux! 

Stormtrooper's picture

That would be a lemonade stand.

TxExPat's picture

It's probably the one setting on the unrealized milti-billion dollar environmental liabilities that will instantly bankrupt it if the EPA ever notices them.

thinkmoretalkless's picture

Your going to have to subscribe to my newsletter for such details.

jamesmmu's picture

Tell me when is the meltdown going to happen! I waited so long.

adr's picture would go public with a $120 billion valuation today and not have to worry about its wholesale margins at all. Like Enron,'s operating procedures were just a bit too early. Amazon and other .com operations would perfect's system of losing money to gain hundred billion dollar plus valuations a decade later and even see their bubble valuations grow to stratospheric heights after a major market crash. Amazon and Priceline's 2008 bubble valuations look like safe and perfectly sane investments compared to 2016.

Hell should try again and launch a mobile sock puppet game along with a pet social network. Each of those adding an additional $100 billion to the company's value.

thinkmoretalkless's picture

unappreciated visionaries

adr's picture

"Dell Computer, for example, delivered total returns to shareholders of 91,863% during the 1990s."

And during the 2000s Dell computer delivered returns of ZERO to shareholders.

Antifaschistische's picture

my valueless sentiment..

...the coming collapse will be most like a tsunami.  At first, people will think the beach is expanding, offering them a new and larger play area than they've ever seen before.  Finding the space irresistable they will venture out to stay close to the "water."  They'll look on toward the deep blue and notice waves..also something they are normally attracted to.  How pretty, what a great surfing opportunity. until......until one guy yell's "tsunami" and starts sprinting away from the water's edge tightly carrying his 18 month old son and leaving his wife to play catch-up.  At first, we look at the runner and ask "what did he say?"  We wonder if perhaps his son was stung by a jellyfish.  Then, we see a few others start running also.  We wonder if perhaps they are all family, but their skin colors tell us differently.  Then, we hear the deep distant roar of the wave.  A sound like we've never heard coming from the ocean.  That's when it hits us...we too should have never ventured out on this sand.  And it's all too late.  Those who weren't even on the sand thought they were safe, because water has NEVER risen to a certain they don't run, and it's soon too late for them also.  At the end of the day we'll scratch our heads wondering how we could have possibly been this overwhelmed with volume.  And like our low volume financials markets today one day completely overwhelmed when some whale pushes the 'sell everything' button...and there's no place to hide.  Everyone within 1000 meters of the shore is taken out.   For a while, we'll cling to the hope that .gov will make everything better again and build us an even better home than before.  It will take time to sink in, that .gov is broke now, and I'm no 'doomsday prepper'.  We'll just be broke.  So you thought you had $247,483 in your its $32,432.  get used to it, and move on.

squid's picture

"So you thought you had $247,483 in your its $32,432.  get used to it, and move on."


In many ways, that's not so bad....everyone and I mean EVERYONE will be wiped out. If you lost 90% its likely your neighbor also lost 90%, nothing much changes......except for the old coot down the street....35 year retired army vet who had 400oz of gold buried in the back yard. Next thing you see this guy is apartment building shopping.....

Of course, if you have 3 mortgages on your house......well then, you're moving to a cardboard box I'm afraid. Debts are nominal, they DON'T deflate.

That old coot could be you.

In a depression, he who loses the least wins.

Plan wisely.



thinkmoretalkless's picture

Excellent analogy. I try to explain my theory that deflation will beget hyper inflation and you just illustrated it.

I also had a flash back to that Monday morning in October 1987 when I thought my quote machine was broke. I need to relive that "watching a car crash in slow motion feeling" more often so I don't freeze like a deer in the headlights again. Better yet continue to get off the road.

cheech_wizard's picture

Dude, you're so not getting a Dell.

Tinky's picture

You thing was a disaster, what about in recent years?

OutaTime43's picture

One word.... Amazon


Infield_Fly's picture
Infield_Fly (not verified) Aug 22, 2016 4:50 PM did a far better swan dive than


$60 IPO down to $0 in a few months.



bid the soldiers shoot's picture



 "Ultimate Breakdown Is Likely To Be Sudden, Intense And Large"


It was immediately preceded by the Russian response to Washington's failed preemptive first strike (nuclear)


Consequently there was no one available to pay the shorts their immense winnings  :o(

Muppet's picture

"Sudden, intense and large".   Sadly though, not in our lifetimes.

DOGGONE's picture

Real asset price histories are very instructive, but have been minimally apparent to the citizenry:
IMO, this deception by omission is the main enabler of sizable asset price bubbles.
Maybe this deception is diminishing, along with consequent money illusion (ignorance!), and foolhardinesses.
Just look at this history that is kept out of sight:

The Alarmist's picture

Heh heh heh!, eh?  This was just about the time Jeff Bezos sent a reply letter to a major consulting firm who had given him some ideas of how he could make Amazon profitable, which went something like this: "Profits are for pussies!" just wasn't thinking big enough.

zero_wedge's picture

Beware of MOFOs.

Storm Chaser's picture

Don't you just hate authors who lure with a bold title yet does not address it anywhere in his article?